Current Tax rates

2018 Tax Brackets

Income Tax Brackets and Rates

In 2018, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1 and 2). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $500,000 and higher for single filers and $600,000 and higher for married couples filing jointly.

Table 1. Tax Brackets and Rates, 2018

Rate

For Unmarried Individuals, Taxable Income Over

For Married Individuals Filing Joint Returns, Taxable Income Over

For Heads of Households, Taxable Income Over

10%

$0

$0

$0

12%

$9,525

$19,050

$13,600

22%

$38,700

$77,400

$51,800

24%

$82,500

$165,000

$82,500

32%

$157,500

$315,000

$157,500

35%

$200,000

$400,000

$200,000

37%

$500,000

$600,000

$500,000

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $5,500 and by $11,000 for married couples filing jointly (Table 4).

The personal exemption for 2018 is eliminated.

Table 2. 2018 Standard Deduction and Personal Exemption

Filing Status

Deduction Amount

Single

$12,000

Married Filing Jointly

$24,000

Head of Household

$18,000

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.

The AMT exemption amount for 2018 is $70,300 for singles and $109,400 for married couples filing jointly (Table 7).

Table 3. 2018 Alternative Minimum Tax Exemptions

Filing Status

Exemption Amount

Unmarried Individuals

$70,300

Married Filing Jointly

$109,400

In 2018, the 28 percent AMT rate applies to excess AMTI of $191,500 for all taxpayers ($95,750 for married couples filing joint returns).

Under the TCJA, AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2018, the exemption will start phasing out at $500,000 in AMTI for single filers and $1 million for married taxpayers filing jointly (Table 8.)

Table 4. 2018 Alternative Minimum Tax Exemption Phaseout Thresholds

Filing Status

Threshold

Unmarried Individuals

$500,000

Married Filing Jointly

$1,000,000

Earned Income Tax Credit

The maximum Earned Income Tax Credit in 2018 for single and joint filers is $520, if the filer has no children (Table 9). The credit is $3,468 for one child, $5,728 for two children, and $6,444 for three or more children. All of these are relatively small increases from 2017.

Table 5. 2018 Earned Income Tax Credit Parameters

Filing Status

No Children

One Child

Two Children

Three or More Children

Single or Head of Household

Income at Max Credit

$6,800.00

$10,200.00

$14,320.00

$14,320.00

Maximum Credit

$520.00

$3,468.00

$5,728.00

$6,444.00

Phaseout Begins

$8,510.00

$18,700.00

$18,700.00

$18,700.00

Phaseout Ends (Credit Equals Zero)

$15,310.00

$40,402.00

$45,898.00

$49,298.00

Married Filing Jointly

Income at Max Credit

$6,800.00

$10,200.00

$14,320.00

$14,320.00

Maximum Credit

$520.00

$3,468.00

$5,728.00

$6,444.00

Phaseout Begins

$14,200.00

$24,400.00

$24,400.00

$24,400.00

Phaseout Ends (Credit Equals Zero)

$21,000.00

$46,102.00

$51,598.00

$54,998.00

2017 Tax Rates

Estimated Income Tax Brackets and Rates

In 2017, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The top marginal income tax rate of 39.6 percent will hit taxpayers with taxable income of $418,400 and higher for single filers and $470,700 and higher for married couples filing jointly.

Table 3. Head of Household Taxable Income Tax Brackets and Rates, 2017

Rate

Taxable Income Bracket

Tax Owed

10%

$0 to $13,350

10% of taxable income

15%

$13,350 to $50,800

$1,335 plus 15% of the excess over $13,350

25%

$50,800 to $131,200

$6,952.50 plus 25% of the excess over $50,800

28%

$131,200 to $212,500

$27,052.50 plus 28% of the excess over $131,200

33%

$212,500 to $416,700

$49,816.50 plus 33% of the excess over $212,500

35%

$416,700 to $444,500

$117,202.50 plus 35% of the excess over $416,701

39.60%

$444,550+

$126,950 plus 39.6% of the excess over $444,550

Source: IRS.

Standard Deduction and Personal Exemption

The standard deduction for single filers will increase by $50 and $100 for married couples filing jointly (Table 4). The personal exemption for 2017 remains the same at $4,050.

Table 4. 2017 Standard Deduction and Personal Exemption

Filing Status

Deduction Amount

Single

$6,350

Married Filing Jointly

$12,700

Head of Household

$9,350

Personal Exemption

$4,050

Source: IRS.

PEP and Pease

PEP and Pease are two provisions in the tax code that increase taxable income for high-income earners. PEP is the phaseout of the personal exemption and Pease (named after former Senator Donald Pease) phases out the value of most itemized deductions once a taxpayer’s adjusted gross income reaches a certain amount. The income threshold for both PEP and Pease will increase from last year to $261,500 for single filers and $318,800 for married couples filing jointly (Tables 5 and 6). PEP will end at $384,000 for singles and $436,300 for married couples filing jointly (both will increase from 2016), meaning that taxpayers with AGI above these limits will no longer benefit from personal exemptions.

Table 5. 2017 Pease Limitations on Itemized Deductions

Filing Status

Income

Single

$261,500

Married Filing Jointly

$313,800

Head of Household

$287,650

Married Filing Separately

$156,900

Source: IRS.

Table 6. 2017 Personal Exemption Phaseout

Filing Status

Phaseout Begins

Phaseout Complete

Single

$261,500

$384,000

Married Filing Jointly

$313,800

$436,300

Head of Household

$287,650

$410,150

Married Filing Separately

$156,900

$218,150

Source: IRS.

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two. The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent. The AMT exemption amount for 2017 is $54,300 for singles and $84,500 for married couples filing jointly (Table 7).

Table 7. 2017 Alternative Minimum Tax Exemptions

Filing Status

Exemption Amount

Single

$54,300

Married Filing Jointly

$84,500

Married Filing Separately

$42,250

Trusts & Estates

$24,100

Source: IRS.

In 2017, the 28 percent AMT rate applies to excess AMTI of $187,800 for all taxpayers ($93,900 for married couples filing joint returns). Under current law, AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2017, the exemption will start phasing out at $120,700 in AMTI for single filers and $160,900 for married taxpayers filing jointly (Table 8.

Table 8. 2017 Alternative Minimum Tax Exemption Phaseout Thresholds

Filing Status

Threshold

Single

$120,700

Married Filing Jointly

$160,900

Married Filing Separately, Estates and Trusts

$80,450

Earned Income Tax Credit

2017’s maximum Earned Income Tax Credit for singles, heads of households, and joint filers is $510, if the filer has no children (Table 9). The credit is $3,400 for one child, $5,616 for two children, and $6,318 for three or more children. All of the aforementioned are relatively small increases from 2016.

Table 9. 2017 Earned Income Tax Credit Parameters

Filing Status

No Children

One Child

Two Children

Three or More Children

Single or Head of Household

Income at Max Credit

$6,670

$10,000

$14,040

$14,040

Maximum Credit

$510

$3,400

$5,616

$6,318

Phaseout Begins

$8,340

$18,340

$18,340

$18,340

Phaseout Ends (Credit Equals Zero)

$15,010

$39,617

$45,007

$48,340

Married Filing Jointly

Income at Max Credit

$6,670

$10,000

$14,040

$14,040

Maximum Credit

$510

$3,400

$5,616

$6,318

Phaseout Begins

$13,930

$23,930

$23,930

$23,930

Phaseout Ends (Credit Equals Zero)

$20,600

$45,207

$50,597

$53,930

Source: IRS.

Tax Records Retention

Tax record retention times

Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the “three-year law” and leads many people to believe they’re safe provided they retain their documents for this period of time.

Even if the original records are provided only on paper, they can be scanned and converted to a digital format. Once the documents are in electronic form, taxpayers can download them to a backup storage device, such as an external hard drive, or burn them onto a CD or DVD (don’t forget to label it).Create a Backup Set of Records and Store Them Electronically. Keeping a backup set of records — including, for example, bank statements, tax returns, insurance policies, etc. — is easier than ever now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet.

You might also consider online backup, which is the only way to ensure that data is fully protected. With online backup, files are stored in another region of the country, so that if a hurricane or other natural disaster occurs, documents remain safe.

However, if the IRS believes you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit. To be safe, use the following guidelines.

Caution: Identity theft is a serious threat in today’s world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you should dispose of these records by shredding them and not disposing of them by merely throwing them away in the trash.

Business Documents To Keep For One Year

Correspondence with Customers and Vendors

Duplicate Deposit Slips

Purchase Orders (other than Purchasing Department copy)

Receiving Sheets

Requisitions

Stenographer’s Notebooks

Stockroom Withdrawal Forms

Business Documents To Keep For Three Years

Employee Personnel Records (after termination)

Employment Applications

Expired Insurance Policies

General Correspondence

Internal Audit Reports

Internal Reports

Petty Cash Vouchers

Physical Inventory Tags

Savings Bond Registration Records of Employees

Time Cards For Hourly Employees

Business Documents To Keep For Six Years

Accident Reports, Claims

Accounts Payable Ledgers and Schedules

Accounts Receivable Ledgers and Schedules

Bank Statements and Reconciliations

Cancelled Checks

Cancelled Stock and Bond Certificates

Employment Tax Records

Expense Analysis and Expense Distribution Schedules

Expired Contracts, Leases

Expired Option Records

Inventories of Products, Materials, Supplies

Invoices to Customers

Notes Receivable Ledgers, Schedules

Payroll Records and Summaries, including payment to pensioners

Plant Cost Ledgers

Purchasing Department Copies of Purchase Orders

Sales Records

Subsidiary Ledgers

Time Books

Travel and Entertainment Records

Vouchers for Payments to Vendors, Employees, etc.

Voucher Register, Schedules

Special Circumstances

Car Records (keep until the car is sold)

Credit Card Receipts (keep with your credit card statement)

Insurance Policies (keep for the life of the policy)

Mortgages / Deeds / Leases (keep 6 years beyond the agreement)

Pay Stubs (keep until reconciled with your W-2)

Property Records / improvement receipts (keep until property sold)

Sales Receipts (keep for life of the warranty)

Stock and Bond Records (keep for 6 years beyond selling)

Warranties and Instructions (keep for the life of the product)

Other Bills (keep until payment is verified on the next bill)

Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)

Personal Documents To Keep For One Year

Bank Statements

Paycheck Stubs (reconcile with W-2)

Canceled checks

Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year end statement)

Personal Documents To Keep For Three Years

Credit Card Statements

Medical Bills (in case of insurance disputes)

Utility Records

Expired Insurance Policies

Personal Documents To Keep For Six Years

Supporting Documents For Tax Returns

Accident Reports and Claims

Medical Bills (if tax-related)

Property Records / Improvement Receipts

Sales Receipts

Wage Garnishments

Other Tax-Related Bills

Personal Records To Keep Forever

CPA Audit Reports

Legal Records

Important Correspondence

Income Tax Returns

Income Tax Payment Checks

Investment Trade Confirmations

Retirement and Pension Records

Business Records To Keep Forever

While federal guidelines do not require you to keep tax records “forever,” in many cases there will be other reasons you’ll want to retain these documents indefinitely.